To understand how the Fed implements monetary policy under an ample reserve framework (since 2008) one must understand the demand for reserves curve. The Fed now changes short-term interest rates by changing its administered rates (the interest on reserve balance rate and the overnight reverse repurchase agreement rate. When they change these administered rates they change the Federal Funds Rate floor. The floor is set within the federal funds rate target range. This video explains how the IORB acts as a reservation rate for the Federal Funds Rate, and how arbitrage opportunities will drive the IORB and FFR together.
